Lower Corn Production Fueling Calls for Ethanol Waiver

With USDA’s forecast that corn production this year will drop 13% to a six-year low as a result of the historic drought nationwide, the calls to divert more corn for food versus fuel are likely to grow more urgent, Ohio State University Extension economist Matt Roberts says.

In its monthly crops report, USDA last week cut its projected U.S. corn production to 10.8 billion bushels, down 17% from its forecast last month of nearly 13 billion bushels and 13% lower than last year. The projected corn production would be the lowest since 2006, meaning there will be intense competition for the reduced crops.

The USDA said it expects corn growers to average 123.4 bushels per acre, down 24 bushels from last year. In Ohio, those numbers translate into a projected 126 bushels per acre, which is down 32 bushels per acre from last year for corn.

For livestock producers already suffering because of poor pasture conditions and high hay costs from the historic drought, that means higher feed costs and the potential that more of them will be forced to sell their herds because they can't afford to feed them, Roberts said.

This is prompting increased calls to divert less corn this year to ethanol by easing the U.S. ethanol mandate, he said. Under the Renewable Fuels Standard, U.S. fuel companies are required to blend 13.2 billion gallons of ethanol into gasoline in 2013, or about 10% of total gasoline usage, which requires converting some 40% of the U.S. corn crop into the biofuel.

"There is more and more pressure for the ethanol mandate to be reduced for the current year to increase the availability of corn for livestock feeding," Roberts said. "Given the yield forecast, coupled with this extreme reduction in feed demand, it will strengthen the case for an ethanol standards waiver.

"These calls began as a trickle for a temporary waiver of the ethanol standard, but the calls have since grown stronger."

In fact, Roberts said, 25 U.S. senators sent a letter earlier this month to the Environmental Protection Agency urging the agency to use its waiver authority to adjust the country's ethanol mandate because of the negative impact on corn prices caused by the drought, which is the most severe in the country in 56 years.

As it stands now, ethanol will be produced from 38% of this year's crop, down from 41% last year, according to government estimates.

But the EPA could waive the renewable fuel standard if it causes an extreme disruption in the input markets or if the fuel is unavailable.

"Many people are calling for the waiver on the grounds that the mandate is causing extreme disruption, but many in the ethanol and renewable fuels industry don't want to see the waiver granted because they see it as a slippery slope for future repeal of the renewable fuel standard," Roberts said.

The calls to waive the ethanol standards come as most of Ohio, except for some counties near the Kentucky, West Virginia and Pennsylvania borders, is experiencing moderate drought, with some counties near the Indiana and Michigan borders experiencing severe and extreme drought as of Aug. 7, according to the most recent U.S. Drought Monitor.

Nationwide, 80% of the U.S. is experiencing drought conditions, up from 40% in May, according to the monitor.

The lack of rainfall has decimated many corn crops, which were damaged as a result of not getting enough rain during their crucial pollination period. So even though growers planted a record acreage of corn this year in anticipation of a strong year with record yields, the lack of rainfall has caused yield forecasts to continue to decline, Roberts said.

The drought has hit the livestock industry hard, he added. The lack of substantial rainfall, extreme heat and dryness have left many producers short on hay and silage supplies and looking for any alternative forages they can plant to make up for the shortages.

That includes diverting less corn to fuel, considering that it takes longer for livestock producers to rebuild feed demand than it does for the ethanol industry to increase production, Roberts said.
"Ethanol plants that shut down or go bankrupt if the waiver is approved will still exist and can easily return to production when prices return," he said. "But with cattle, it takes 2 to 4 years to build up a cattle herd. "So if these high feed prices cause cattle herds to decline, then in the best-case scenario, it will take multiple years to rebuild those herds."

As a result, the livestock industry is asking for an ethanol standard waiver, in any amount.
"Any waiver would help livestock through lowered feed prices, so from the livestock industry perspective, the bigger the waiver, the better," Roberts said. "And with last week's lowered yield forecast, that argument is given more weight."

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Anonymous8/18/2012 01:58 AM

This is why it was such a mistake to artificially hold grain prices at 18th century levels for so long. No one wants to acknowledge that the price of farm use diesel was 62 cents per gallon when Bush/Cheney stole the White House and quickly got it up to $4.50. It is still over $3.50 today!! Someone has to pay the piper and since grain prices are STILL less than parity it obviously can't be the farmer.​